4 keys to unlock city services innovation
With rising air pollution to costly traffic congestion and increasingly burdened public finances, cities need to transition onto a sustainable path towards healthy, productive and equitable urban communities. To thrive in the coming urban century, cities will need to innovate how they deliver sustainable urban services to meet people’s needs.
While there is no unique recipe for delivering sustainable urban services, many successful solutions around the world share common characteristics. An ongoing project between World Resources Institute (WRI), the Citi Foundation and C40 is working to identify global examples of sustainable urban innovation and draw out commonalities across them. The partnership helps develop locally customized business models that can accelerate the implementation of sustainable solutions around the world. Through a global scan of urban innovations, the partnership has distilled four key elements that are critical ingredients to thriving, sustainable cities.
Rethinking how we meet people’s needs
Traditional thinking about services focused on simply expanding the supply of infrastructure such as roads, highways, bus rapid transit (BRT) and metro in and between cities. The idea was that more infrastructure would give more people access to mobility options.
The problem with simply expanding infrastructure is that it misses how people will use it. Exclusively increasing road space without giving people alternatives to use public transit leaves people no choice but to rely on private vehicles. This in turn leads to a vicious cycle of more congestion. The costs of this business-as-usual approach are staggering: In Mexico City, thousands of people spend hours stuck in congestion every day, costing the local economy 2.6 percent of GDP every year.
Innovative service solutions are reversing the traditional thinking that has led to congestion, sprawl and inefficiency by taking into account how people actually use infrastructure to meet their needs. For example, transit-oriented development (TOD) brings people into compact neighborhoods where they need fewer — or don’t need any — roads and highways to access amenities and jobs in the city. TOD makes efficient use of infrastructure, reducing the distance between people and their destinations and connecting them with efficient transport options such as mass transit and bike share.
Shifting traditional roles in service provision
Urban services are typically considered the responsibility of the public sector. But growing urban populations and constrained public finance mean that the public sector cannot deliver successful services entirely on its own. Many urban innovations are the result of shifting roles and responsibilities between public, private and civil society actors, including people.
New service operators are emerging to deliver non-traditional infrastructure services, such as efficient street lighting and building efficiency. In Bhubaneswar, India (as in many other places), an energy service company is taking on the task of upgrading and maintaining public lighting, in exchange for a share of the savings generated through more energy efficient infrastructure. Even service users are taking on more active roles by opting for residential solar rooftops, enabling them to generate their own power or lease out their roof space to third party companies who operate the infrastructure.
Unlocking new sources of funding
One persistent challenge for many sustainable services has been a lack of funding — viable revenue streams or transfers that support services through the cycle of planning, construction, operation and maintenance. In Mexico City, for example, internal budgeting barriers and legal constraints are holding the city back from investing in retrofits of public buildings.
Many urban innovations are succeeding by unlocking previously untapped willingness-to-pay. In the sharing economy of shared cars, bikes and rides, new service providers have succeeded in turning end users’ desire for point-to-point, no-hassle mobility into a viable stream of income for their business. Rather than paying for ownership of the infrastructure, users are paying a fee for mobility services from providers such as Uber, Lift and a range of bike share operators.
Finding value in unexpected places is also possible in large-scale urban developments. Rio de Janeiro is capturing the value of land by auctioning additional development rights in Porto Maravilha (Portuguese) ahead of the 2016 Olympics. These tradeable securities, so-called CEPACs, effectively put a price on every square meter of vertical development above a certain threshold and are used to fund much-needed public infrastructure and mixed-use urban revitalization.
Evolving the financial toolkit
While new sources of funding are critical, urban innovators often face the financial challenge of mobilizing sufficient capital to make the upfront investment. The reason for this is that many sustainable solutions can appear too risky to be attractive for financiers looking to make a return on their investment. This perceived riskiness can result in limited access to the upfront capital that many urban innovations so desperately need.
While commercial banks may not be willing to lend to a start-up, new financial products and approaches are bypassing traditional lending institutions. In the Philippines, the GETCAPITAL crowd-microfinance approach has proven critical in supporting independent owners of new electric buses. Thanks to this financing strategy, new buses are replacing outdated, dangerous and inefficient "Jeepneys" — the traditional mode of transport — in Manila. Investors are guaranteed a 6 percent return on their investment, which is paid back by shares in the fare and advertising revenues.
Financial innovations also include those that put a twist on traditional debt products — such as loans and bonds. For instance, in the case of "on-bill financing" for building efficiency, a utility or third party will put up the upfront costs (often financed through a fairly standard low-interest loan), while the customer repays the investment through a charge or tariff on the utility bill.
The urban century of innovation
Disruptive changes are needed in order to achieve global climate commitments, the Sustainable Development Goals and improve cities for people. New business models that combine sustainable service solutions with creative approaches to funding, financing, and delivery are already reshaping cities today. They offer a glimpse at the future of urban innovation.